US stocks surged on Wednesday after the latest Consumer Price Index (CPI) report showed progress in taming inflation. The Dow Jones Industrial Average rose nearly 700 points, while the S&P 500 increased by 1.69%, and the Nasdaq Composite was up by 2%. The closely watched core measure of the CPI, which excludes highly volatile categories like food and energy, slowed for the first time in months, according to data from the Bureau of Labor Statistics.
Overall, the CPI did increase more than anticipated, rising by 0.2 percentage points to an annual rate of 2.9%. However, this monthly gain was largely driven by higher gas and food prices. Excluding energy and food, the core CPI gauge rose by just 0.2% from November and eased to 3.2% after remaining at 3.3% since September 2024.
Eugenio Aleman, chief economist for Raymond James, said in a note, “Markets reacted positively this morning for a good reason: the Federal Reserve is okay with watching the headline CPI go up temporarily if that increase does not spill over into the core CPI, and this is what happened in December.”
Economists had expected inflation to pick up 0.3% from November and reach an annual increase of 2.8%, mainly due to higher energy and food prices.
Stocks rise amid improving CPI data
Wednesday’s report marked the final CPI reading for 2024 and came just before President Joe Biden transitions the presidency to President-elect Donald Trump.
The recent bout of inflation has been attributed to the aftermath of the Covid-19 pandemic, which had a significant impact on prices, hitting Americans hard and influencing voter sentiment. Prices of everyday items are 21% higher than they were in 2021, compared to an average increase of just under 10% over a typical four-year period. Although wages have risen faster than inflation for 20 months, they still remain below where they were four years ago.
Inflation, which peaked at 9.1% in June 2022, has slowed considerably. However, the path back to typical inflation rates has been uneven throughout 2024, with significant fluctuations observed. Robert Frick, corporate economist at Navy Federal Credit Union, noted that despite the market’s positive reaction, the report underscores the ongoing challenges faced by American consumers.
The cost of necessities that hurt household budgets, especially for lower-income Americans, were among the top reasons inflation rose in December,” he said, citing higher prices for food, energy, shelter, and vehicle insurance as contributing factors.
